Aurobindo Pharma 1QFY2015 performance highlights and results update

Aurobindo Pharma (APL), announced its 1QFY2015 numbers, which have come in much ahead of our expectations. The company posted a revenue of Rs.2,895cr (V/s an expected Rs.2450cr), up 70.3% yoy, led by a 106.7% yoy growth in formulations, while the API grew by 3.6% yoy. On the operating front, the EBITDA margin came in at 22.2% (V/s an expected 16.7%), an expansion of 548bp yoy. This was on back of an expansion in the gross margin by 474bp yoy, on a favourable sales mix. Thus, the Adj. PAT came in at Rs.415cr (V/s an expected Rs.282cr), up 142.2% yoy. We recommend an Accumulate rating on the stock with a price target of Rs.774.

A better-than-expected result: The company posted a revenue of Rs.2,895cr (V/s an expected Rs.2,450cr), up 70.3% yoy, led by a 106.7% yoy growth in formulations, while the API grew by 3.6% yoy. Also, during the quarter, the company started integrating the western European business of Actavis, which aided the European formulation business to grow by 359% yoy, while USA grew by 78.6% yoy. On the operating front, the EBITDA margins came in at 22.2% (V/s an expected 16.7%), an expansion of 548bp yoy, on back of an expansion in the gross margin. Thus, the Adj. PAT came in at Rs.415cr (V/s an expected Rs.282cr), up 142.2% yoy.

Outlook and valuation: We estimate the company’s net sales to log a 29.4% CAGR over FY2014–16E to Rs.13,463cr on back of supply agreements in the US and antiretroviral (ARV) formulation contracts, which will be supplemented through the recent acquisition of the Western European formulation business of Activas. This has also led APL to become a ~US$2bn sales company, with more than 85% of sales being accounted by formulations. We recommend an Accumulate rating on the stock with a price target of Rs.774.